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Bang for the Buck

January 2011

By: Ron Haas

In tough economic times, nonprofit organizations scour their budgets looking for any possible place to trim a few dollars. Even though the old adage reminds us that, "It takes money to make money," executive directors and board members often debate the return on investment of the ministry's development department. "Are we really getting our money's worth from our fundraising efforts?" Fundraising can be an expensive enterprise with staff, events, videos, a website, and promotional materials. Recently, a Christian ministry reviewed their development budget and decided to eliminate their entire department. Their draconian reaction might solve a short-term budget crisis, but it will have an adverse impact on the organization's viability. Just because sales are down doesn't mean that you should stop selling.

Acceptable Fundraising Ratios

One way to gauge the cost effectiveness of a development department is to calculate fundraising expense against revenue. While this sounds like an accurate method for determining the efficiency of an organization, many variables make it difficult to make "apples-to-apples" comparisons. Do you compare the fundraising revenue to total revenue, or only income generated through fundraising efforts? Should estates be included in the calculation? Which expenses are allocated to Management and General, and which are allocated to Ministry Advancement?

What should be your fundraising cost? It depends on the method you use. James Greenfield suggests that the overall national average cost to raise a dollar is 20 cents, which means 80 cents of every dollar raised goes to the charitable purpose or programs.1

METHOD

COST

Capital Campaign/Major Gifts

$0.05 to $0.10 / dollar raised

Corporations and Foundations (Grant Writing)

$0.20 / dollar raised

Direct Mail Renewal

$0.20 / dollar raised

Planned Giving

$0.25 / dollar raised -- and a lot of patience!

Benefit/Special Events

$0.50 of gross proceeds -- and a lot of work!!

Direct Mail Acquisition

$1.00 to $1.25 / dollar raised

National Average

$0.20

Focusing only on fundraising ratios can lead to inaccurate assessments because there are legitimate reasons why fundraising ratios as well as general and administrative ratios differ among organizations.2 A more effective way to evaluate your fundraising effort is to ask, "Are we doing the right things that will lead to the right results?"

Director of Development Performance Review

The biggest line item in the development budget is the salary and benefits for the development director. How does a ministry determine whether that individual is doing the job? Of course, the obvious metric is the bottom line. If the person in charge of finding money never finds any money, he or she may be your prime candidate for some "administrative streamlining." However, because fundraising depends on how donors respond to the ministry, the decision to let someone go isn't always black and white. Help your development officer to become more productive by establishing clear job expectations. You can't control the outcome from donor relationships, but you can inspect the input of your development team. Consider these seven criteria when evaluating how a development director invests his time.

1. MAJOR DONOR RELATIONSHIPS (60%) The Development Director's primary job responsibility is to identify, cultivate, and solicit new major donors by implementing the following steps.

A. Research. Identify current and lapsed donors utilizing the donor software. Discover new donors by networking through existing donor relationships and board contacts.

B. Romance. Raise each donor's level of engagement with the organization through cultivation activities such as visits, personalized communication, and vision tours.

C. Request. Make 15 face-to-face "ask" visits per month using the Leadership Proposal.

F. Report. In a non-solicitation call, update donors about what God is accomplishing.

2. MAJOR DONOR EVENTS (15%) The Development Director should organize "friend-raising" events to identify new major donors.

A. Donor Briefings. Plan at least one small gathering per month to share the organization's story with current, lapsed, and prospective donors.

B. ____________________ (ministry-specific major donor event). Organize other major donor cultivation opportunities such as a reception before an event, or a special trip/meeting that strengthens donor relationships.

3. GENERAL DONOR EVENTS (10%) The Development Director should organize at least one annual "ask" event designed to solicit the 80 percent of the donors who will give 20 percent of the donations.

A. New Friends Dinner. Take primary responsibility for the organization of this fundraising event. Recruit committee leaders to solicit table sponsors and guest hosts.

B. Auction/Golf Tournament/Etc. Take a supportive role in this type of fundraising event. Recruit and train committees to solicit auction items, promote, and run the event. Monitor these events to ensure that they align with the organization's comprehensive development plan.

4. PUBLIC RELATIONS (5%) The Development Director is responsible for the organization's public image.

Print/Electronic Materials. Communicate to the constituency through printed and email newsletters.

Press Releases. Identify and submit newsworthy stories on a regular basis to raise public awareness.

5. CHURCH RELATIONS (5%) Seeking church financial support is not a primary strategy, but it is important to cultivate strong relationships with church leaders. Churches are a gateway to individual donors.

A. Pastor Visits. Meet with one pastor per month to share the organization's story and strengthen relationships with area churches.

B. ___________________ (ministry-specific church strategy). Identify opportunities for your organization to minister to area churches through service projects, special music, etc.

6. FOUNDATION PROPOSALS (2%) Not every organization is located in a community blessed with foundations that give to Christian ministries. Only invest time in grant writing to foundations with a high likelihood for success.

A. Research. Identify prospective foundations within a close proximity that give to similar organizations. Where possible, network with foundation executives and trustees.

B. Submit Proposals. Develop a calendar based on application deadlines.

7. ORGANIZATIONAL COMMUNICATION (3%) Successful fundraising is a group effort that requires healthy communication. The development director must communicate openly and consistently with team members.

According to Howard Hendricks, "The secret of concentration is elimination." Fundraising is plagued with rabbit trails and time-wasting activities. Even the best development directors can be sidetracked with tasks that are not directly related to raising money. Executive directors and board members should guard the development director's job description so that it doesn't creep away from the primary function of major donor development. The development director shouldn't be on every organizational task force. While these committee assignments have merit, the development director simply doesn't have time to spend making the program better. He or she must stay focused on raising money for the programs the organization already has or is going to have. Smart development directors have a to-don't list and stick to it.

Instead of slashing your development budget because your team is not raising enough money, refocus your strategy to spend more time cultivating donor relationships. Major donor fundraising will produce the biggest bang for your buck.

Ron Haas is Vice President of the Timothy Group in Grand Rapids, Michigan. He can be reached at rhaas@timothygroup.com.

2. Evangelical Council for Financial Accountability (2010). "How Much for Fundraising? The Common Myths About Ministry, Overhead, and Efficiency." Retrieved from http://www.ecfa.org/Content/How-Much-for-Fundraising.